The European Stability Mechanism (ESM) has further elaborated on the decisions regarding the Greek that were reached at the recent Eurogroup, via an FAQ.
According to the ESM, the first disbursement would amount to €7.5 billion, to be used for debt service obligations and the clearance of domestic arrears. Subsequent disbursements will be made after the summer, provided that the milestones are completed.
In relation to debt relief, the ESM points out that the short-term measures include smoothening the EFSF repayment profile, using the EFSF/ESM diversified funding strategy to reduce interest rate risk and waiving the step-up interest rate margin related to the debt buy-back loan (disbursed by the EFSF in 2012) for the 2017.
Medium-term measures include utilizing unused resources from the ESM program for partial early repayment of official loans, paying out SMP (Securities Markets Program) and ANFA (Agreement on Net Financial Assets) profits to Greece, providing ,re substantial debt re-profiling on EFSF loans and abolishing altogether the step-up interest rate margin related to the debt buy-back as of 2018.
The controversial contingency mechanism of debt will act as a long-term measure and be activated – if necessary –after the end of the ESM program (August 2018) to ensure debt sustainability. The contingency mechanism could entail measures such as a further EFSF re-profiling and capping and deferral of interest payments.
The ESM explains that these measures will see Greece’s gross financing needs remain below 15% of GDP during the post-program period for the medium term, and below 20% of GDP thereafter. This in turn would bring Greece’s very high debt-to-GDP level on a persistently declining path and ensure the long-term sustainability of Greek debt.